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Why Is RingCentral (RNG) Down 22.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for RingCentral (RNG - Free Report) . Shares have lost about 22.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is RingCentral due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

RingCentral Q4 Earnings Top Estimates, Revenues Up Y/Y

RingCentral reported fourth-quarter 2020 non-GAAP earnings of 29 cents per share, which surpassed the Zacks Consensus Estimate by 7.4%. The figure increased 31.8% on a year-over-year basis.

Net revenues of $334.5 million also beat the consensus mark by 5.5% and jumped 32.3% from the year-ago quarter. The results reflect solid demand for RingCentral’s cloud-communication solutions.

Quarter Details

Software-subscription (91.6% of total revenues) revenues surged 33.6% year over year to $306.5 million.

Annualized Exit Monthly Recurring Subscriptions (“ARR”) increased 35% year over year to $1.3 billion.

RingCentral Office ARR soared 39% year over year to $1.2 billion. Mid-market and Enterprise ARR jumped 49% to $713 million.

Moreover, enterprise ARR surged 55% year over year to $454 million. Channel ARR soared 55% year over year to $465 million.

Other revenues (8.4% of total revenues) climbed 19.5% year over year to $28 million, reflecting higher adoption of RingCentral apps in the prevailing work-from-home wave.

On Oct 20, RingCentral introduced a fully-integrated high-volume SMS service to enable rapid communication between businesses and their customers.

Moreover, the company released RingCentral Glip, a free, unlimited, easy-to-use solution that offers high quality and high-availability video and audio conferencing, seamlessly integrated with team messaging, file sharing, contact, task, and calendar management for a Smart Video Meetings experience.

Meanwhile, fourth-quarter 2020 non-GAAP gross margin expanded 70 basis points (bps) from the year-ago quarter to 76.6%.

On a non-GAAP basis, research & development (R&D) expenses increased 45% year over year to $45.2 million. Sales and marketing expenses were up 33.7% to $141.8 million. General and administrative expenses rose 16.4% to $35.5 million in the reported quarter.

On a non-GAAP basis, operating income was $33.8 million, up 39.1% year over year. Non-GAAP operating margin expanded 50 bps from the year-ago quarter to 10.1%.

Key Q4 Developments

During the quarter, the company announced that RingCentral Global Office will be available in six continents including Africa, Asia, Australia, Europe, North America and South America. It also announced expansion in several countries including Estonia, Greece, Lithuania, Slovenia and South Africa.

Additionally, the company released more than 70 new features to RingCentral Video. The new innovation enables faster and more secure business video meetings.

Markedly, RingCentral acquired certain technology assets of DeepAffects, a leading conversational intelligence pioneer that uses artificial intelligence (AI) to analyze business conversations and extract meaningful insights.

DeepAffects brings powerful AI capabilities that will enable RingCentral to deliver enhanced pre-meeting, in-meeting and post-meeting experiences for customers.

Moreover, RingCentral entered into a strategic partnership with Vodafone Business to deliver new cloud-based communications services.

During the quarter, RingCentral announced that Horizon Telecom will offer RingCentral Office to large-scale multinational enterprises around the world.

Additionally, it announced during the quarter that Stack8 — a leading North American provider of unified communications (UC) solutions — will offer RingCentral’s UCaaS platform to large enterprise customers globally, and provide RingCentral Office along with an international cloud phone system to all customers.

Moreover, during the quarter, RingCentral announced its availability in the new Amazon Web Services Activate Console Exclusive Offers Program.

Balance Sheet

As of Dec 31, 2020, Autodesk had cash and cash equivalents of $639.8 million compared with $746 million as of Sep 30, 2020.

Guidance

For the first quarter of 2021, RingCentral expects revenues between $337 million and $340 million, indicating year-over-year growth of 26-27%.

Moreover, software-subscription revenues for the quarter are expected between $311.5 million and $313.5 million, indicating year-over-year growth of 28-29%.

Non-GAAP operating margin is expected to be in the 8.6-8.8% range for the first quarter. Earnings are expected between 24 cents to 25 cents per share.

For 2021, RingCentral expects revenues between $1.475 billion and $1.490 billion, indicating year-over-year growth of 25% to 26%.

Further, software-subscription revenues for the year are expected between $1.365 billion and $1.375 billion, implying year-over-year growth of 26% to 27%.

Non-GAAP operating margin is expected between 10% and 10.1% for full-year 2021.

Earnings are expected between $1.20 to $1.24 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted -42.27% due to these changes.

VGM Scores

At this time, RingCentral has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, RingCentral has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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